Boeing separates airplane production, design

A model of Boeing 787-8 passenger plane is displayed inside its booth at the Asian Aerospace Show in Hong Kong March 8, 2011. REUTERS/Bobby Yip

(Reuters) - Boeing Co (BA.N) said on Monday it is creating a new division to oversee airplane development, hiving off that function from production as it seeks to ramp up factory output.

The company named Scott Fancher, who heads Boeing’s 777 jet program, to lead the new “airplane development” division, which will handle design and flight certification of planes that are currently on the drawing board. These include the 737 MAX, the 767 Tanker and 787-9, and the 777-X and 787-10X programs that have not yet formally started.

The move comes as Boeing plans to lift factory output by 25 percent over the next 18 months, and tries to develop five derivative jets to meet customer demand for longer-range and more fuel-efficient planes to better compete with Europe’s Airbus EAD.PA.

Analysts called the division sensible given the unusually large number of new planes in development and the unusually rapid pace of Boeing’s factories - “the highest levels in commercial aviation history,” as Boeing put it.

“Successfully balancing our production and development priorities is critical to our future viability and success with customers,” Ray Conner, chief of Boeing’s commercial airplane business, said in a message to Boeing employees on Monday.

The new structure creates an “airlines programs” unit headed by Pat Shanahan, a senior vice president currently in charge of production. The division will be responsible for the profit and loss of the jet programs in production, and integrating development of new jets into production.

The division of labor “puts a specific leader in charge of future development,” said Boeing spokesman Marc Birtel, and allows Shanahan to focus on production.

Boeing’s commercial aviation services unit, which provides support for jets in service, will continue to be led by Lou Mancini, a senior vice president.

Analysts said Boeing needs to optimize both sides of the airplane business, but it was unclear how the development side would be handled. “The production ramp is not insignificant” particularly on the 777, said Russell Solomon, an analyst at Moody’s Investors Service in New York. For such a “hugely important and profitable program you don’t want to have a misstep.”

Developing five new planes, including substantial redesign of the 777, is a tall order. “Organizationally, it makes sense to have someone who’s in charge of all of that,” said Scott Hamilton, analyst at Leeham Co in Seattle.

“The only real risk is will he be stretched too thin,” he said. “We have to see how Fancher organizes his new responsibility.”

Boeing shares ended down 0.35 percent at $74.02 Monday on the New York Stock Exchange.